Good Management: Many Happy Returns(?)

Management consultancy McKinsey interviewed directors of operations at 100 companies in France, Germany, the United Kingdom, and the United States about their use of three management techniques: lean manufacturing; talent management; and performance management.

After scoring the company and comparing the results over five years with average return on capital employed, the following were the results. Glory of glories (if you’re a management consultancy), better management leads to a higher return on capital:

This is moderately interesting, of course, and good marketing fodder if you’re McKinsey. But it also is one of those studies that only barely passes the “reverse hypothesis” test. In other words, it would have been much more interesting to find out that better management didn’t lead to higher return on capital. Then you’d have yourself a story. Doing a study that confirms the obvious is rarely worth the candle.

With the preceding in mind, I’d like to suggest a follow-up study to McKinsey. In the above chart one in four (27%) companies with the highest management score (“4″) had poor financial performance. While some laggards were to be expected, having one-in-four firms manage things well and still turn in a lousy return on capital is worth talking about — especially if you’re a management consultancy.